4 Takeaways on the Future of Travel Distribution and the Accompanying Channel Shock

Andrew Sheivachman, Skift

- Aug 24, 2017 2:00 am

Skift Take

Airlines around the world are looking to revamp their distribution and merchandising efforts. Most of the innovation is happening in Europe right now, but U.S. airlines are starting to experiment, as well.

— Andrew Sheivachman

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The same major players have dominated travel distribution for a very long time. Could that change sometime soon?

In Channel Shock: The Future of Travel Distribution, we took a look at the prospects of the global distribution systems in a marketplace that has experienced constant fragmentation in recent years. Airlines and hotels want to expand their revenue management capabilities, while also moving away from platforms that charge fees for transactions and services.

There’s also the reality that technological advances have overtaken the capabilities of the big distribution platforms — namely Amadeus, Sabre, Travelport, and TravelSky — and smart new players will eventually emerge that better meet the needs of airlines and hotels without the baggage of legacy technology.

Here are four takeaways from our report that you need to know.

1. A New Wave of Resistance Is Here

Lufthansa caused a stir in 2015 when it announced it would require a surcharge on global distribution system bookings, and IAG recently stated it will do something similar on its British Airways and Iberia flights. These airlines are tired of paying fees for global distribution system bookings, and would rather use the lever of increased fees to push customers to channels that cost the airlines less.

In addition, American Airlines is experimenting with a $2 payout per segment booked directly through the airline by agencies using IATA’s New Distribution Capability level three technology, which basically puts booking management back in the airline’s hands. The goal is to incentivize agencies and technology providers to bypass global distribution systems. But the distribution companies say they aren’t too concerned at the moment.

Airlines have renewed their resistance to using the global distribution systems, although it’s unclear whether this attempt to break away from established distribution channels will succeed. For the time being, airlines are playing nice with the distribution companies while toying with methods to receive more bookings, and more ancillary purchases, through their preferred channels.

2. Merchandising Has Improved, But Will It Be Enough?

For the last five years, as ancillaries such as bag fees and preferred seats emerged as a major source of revenue for airlines, the inability of the global distribution systems to allow airlines to effectively merchandize add-ons was a constant challenge.

Sabre, Amadeus, and Travelport now have improved airline and hotel merchandizing tools. But these capabilities don’t change the economics of doing business with a global distribution system; travel providers would prefer to move to platforms with a lower distribution cost where they don’t have to pay costly fees on each transaction.

There is also the question of advanced analytics and marketing. On online channels and through apps, airlines can push personalized deals to customers based on Big Data and other behavioral information. They can’t do the same thing on global distribution system channels.

As ancillary revenue continues to increase, and bundling becomes more important, airlines would rather be the masters of their own destiny than beholden to systems that make it harder for them to push the right deal to the appropriate customer at an opportune time.

3. Startups Are Innovating

Innovation in the travel distribution space isn’t dead, in part because of sophisticated APIs [application program interfaces] from airlines. In the right hands, these interfaces have enabled clever technology companies to provide a booking experience that is more robust than traditional online booking tools or global distribution system front-ends.

It’s unclear whether any of these startups will eventually gain traction, yet the problems they are solving will make the buying process easier for both airlines and flyers themselves.

There’s also the prospect of new distribution technology, particularly blockchain, one day transforming how travel is bought and sold. Perhaps blockchain wouldn’t be a perfect solution for the challenges faced in the travel distribution marketplace, but wide adoption of the technology could force global distribution systems to once again focus on innovation instead of making incremental improvements to their existing infrastructure.

4. Europe Is Leading The Way in CHALLENGINg the system

European airlines have been more ready to challenge the distribution status quo due to competition in the European air market. North American airlines, meanwhile, have been limited by widespread consolidation that makes it a riskier proposition to try something new and ostracize existing partners.

At this point, true innovation is likely to come from the European travel marketplace instead of North America as the European airlines may have the bandwidth to be more flexible and willing to take some risk. The short-haul nature of most European flights makes ancillaries a more important aspect of a trip, as well.

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Photo Credit: Global distribution system providers still have a strong position in the travel distribution marketplace — for now. A passenger standing in front of the display board for departures at the airport in Munich, Germany, November. 29, 2016. Peter Kneffel / Associated Press